Moody’s explained in its press release that the debt ratings of the three banks have incorporated “unusual levels of uplift” based on the assumption that they would be prevented from failing by the United States government. It’s now reviewing that assumption based on the Dodd-Frank financial reforms that promise an end to bailouts.

"The US government's intent under Dodd-Frank is very clear," says Moody’s Senior Vice President Sean Jones. "Going forward, it does not want to bail out even large, systemically important banking groups."

Nonetheless, Moody’s is skeptical about the No Bailout promises of Dodd-Frank. In particular, Moody’s doesn’t buy the FDIC’s claim that it can “resolve” large, complex financial institutions without risking a disorderly disruption in the marketplace. Which means that regulators would likely resort to a bailout when the chips are down.

The higher credit ratings make it cheaper for the banks to borrow—which means that the US taxpayer is essentially subsidizing them with an implicit guarantee. This is worth billions to the banks

It also means that the banks are likely less financially sound than their credit costs would make them appear to be—because bond buyers don’t have to be as vigilant about risks. In short, they’re our new Fannie Maes and Freddie Macs.

Moody's gives both Bank of America and Citigroup a C-minus in terms of their financial strength. That would get their senior bonds rating of Baa2 without government support. Because of government support, Bank of America senior debt is rated A2—five notches higher—and Citi’s is rated A3—four notches higher. Wells Fargo gets a C-plus rating for its financial strength, which would give its debt a rating of A2. Because of the presumption of government support, it gets a three notch boost up to Aa2.

It’s not just these three banks that Moody’s rates more highly on the assumption of government. Moody’s says the it assumes the government will support Bank of New York Mellon, JPMorgan Chase, Goldman Sachs, Morgan Stanley and State Street.